Gold juniors about to be bought by gold majors

Goldcorp’s $238 million acquisition of gold junior Canplats last week is a reminder of the next phase of the gold price boom in which the largest gold companies will buy out the minnows of the industry.

Big Gold needs to replenish its reserves in an era of declining global gold output and rising prices. Leaving these acquisitions much longer will mean that the best targets have gone, and the cost of the remainder will be that much higher.

Bargain takeover

Canplats shows that cheap gold is still available in the junior mining sector. Goldcorp got a bargain apparently with 1.7 million ounces of gold reserves bought for an average price of $133 an ounce.

Of course it is better than that because as a publicly quoted group Goldcorp is more highly valued than a small company, so the reserves are actually revalued by a factor of five in the takeover.

So the next gold rush is not gong to be guys heading to California with picks and shovels but investment bankers running their slide-rules over the junior mining sector. Buy these stocks now and you ought to become very rich!

The obvious plumbs are those with under-priced reserves that can be revalued. But there are also many junior explorers sitting on gold claims that have far greater potential value to Big Gold. These assets can also be revalued in a takeover but also hold the potential for new gold discoveries at a time of surging gold prices.

Gold claims

In fact in previous gold price booms the biggest surge in share prices has always been among the gold exploration stocks, the juniors that own these gold claims.

Surely the investment bankers looking at what gold companies ought to be buying will soon come across this not so generally appreciated fact and begin to make some interesting recommendations among the junior gold explorers.

There is even a new ETF for junior gold companies, GDXJ (see this article) but the best buys will be the individual stock picks, although a rising tide will carry all ships higher.